CF Industries (CF), OCI N.V. Amend Merger Agreement

Posted On: December 22, 2015

CF Industries (CF – Analyst Report) and Netherlands-based fertilizers and industrial chemicals producer – OCI N.V. – said that they have amended their merger agreement originally announced in Aug 2015.

Under the modified agreement, the jurisdiction of incorporation and tax residency of the new combined company has been changed to the Netherlands from the UK. The agreement has been unanimously cleared by the boards of both companies.

The companies noted that, by being tax resident in the Netherlands, the combined company would satisfy the requirements of the U.S. Department of the Treasury’s notice issued on Nov 19, 2015. The new Treasury rules are aimed at reducing the tax benefits available to companies that move their tax residence overseas to avoid paying taxes. The new rules would make it difficult for U.S. companies to qualify for a tax inversion.

CF Industries, in August, agreed to purchase the European, North American and Global distribution assets of OCI N.V. in a deal worth around $8 billion, including assumption of roughly $2 billion in debt. The deal includes OCI’s nitrogen production plants in Geleen, Netherlands, and Wever, IA, and its interest in an ammonia and methanol complex in Beaumont, TX, along with its global distribution assets in Dubai, UAE.

Per deal terms, CF Industries will become a subsidiary of the new, integrated company. OCI will contribute its European, North American and Global distribution assets to the merged company for 25.6% of shares in the new entity along with $700 million of consideration to be paid in cash or stock (at the new entity’s discretion), of which $550 million is expected to be paid in shares.

The transaction, which is still subject to clearance of shareholders of both companies and receipt of specific regulatory approvals, is expected to consummate by mid-2016. The companies have already secured U.S. antitrust approval and the clearance from the European Commission for the deal.

The companies said yesterday that an amended registration statement on Form S-4 will be filed with the U.S. Securities and Exchange Commission (SEC). They will also pursue additional regulatory approvals that are not received yet.

The integrated entity will also buy a 45% stake with an option to purchase the balance interest in OCI’s Natgasoline project in Texas, which after its completion, will be one of the biggest methanol plants in the world.
Following the closure of the transaction, shareholders of CF Industries will own around 72.3% of the new company with OCI holding around 27.7%. The mix of final consideration and ownership split will be based on CF Industries’ stock price at the time of transaction closing.

The new, combined entity will operate under the name CF and be led by the current CF Industries management. It will be listed on the NYSE under the ticker symbol “CF”.

The merger will create a global nitrogen behemoth with combined production capacity reaching around 12 million nitrogen-equivalent nutrient tons by mid-2016. It is expected to boost CF Industries’ production capacity by 65% over the next two years and also extend the company’s portfolio into the rapidly growing methanol market.

The change in tax residency is also not expected to have any meaningful impact on the anticipated synergies from the merger. CF Industries expects to achieve around $500 million (post-tax) in annual run-rate synergies from the transaction through optimization of operations, capital and corporate structure.